Yoshiharu Sato
Working Paper
Abstract
US stock buyback data shows that issuers themselves are major buyers in today's US equities market. Companies buy back more of their own shares as the market rises and fewer as it falls, as they have more capital for buybacks during the upturns than they do during the downturns. This particular characteristic of stock buybacks provides investment opportunities for trend following. In this paper, we propose a low-frequency systematic equity strategy combining the NASDAQ US Buyback Achievers Index (DRB) and a historically proven trend-following strategy. Despite its simplicity, a 5-year backtest result of our long/short strategy shows a 267% total return in the period, with the Sharpe ratio of 2.0. Our analysis explores the advantages of combining the two concepts into a single portfolio.
Keywords: Systematic Trading, Low-Frequency Trading, Trend Following, Stock Buyback